Sunday, July 27, 2008

Why does housing industry need rescuing?

The U.S. Senate's approval Saturday of a housing market rescue bill is great news for the hundreds of thousands of homeowners who may now be able to save their homes. But why do Fannie Mae and Freddie Mac, the giant public-private mortgage lenders, need emergency financing? Those companies, which back half of the nation's $12 trillion in outstanding home loans, are the backbones of the national economy and are not supposed to be taking risks with the money. So how did they end up losing billions on bad home loans, causing their stock price to plummet? Could it be that the same loose government regulation responsible for the collapse of IndyMac Bankcorp, the third-largest financial institution ever to fail, also infected Fannie and Freddie? Isn't anyone paying attention? The new housing bill also sets up a new regulator to oversee Fannie and Freddie. But how can we rationally expect the government to fix a financial meltdown that is largely the result of its own action or inaction?

2 comments:

Anonymous said...

Why don't we ask the government? email your senator and ask the question.

saxsaxsax said...

part of the reason was pressure from congress to make the risky loans so more people could buy houses (ie, thank their congressman) and to further inflate the housing bubble (ie, artificially grow the economy, ie, make the govt look good), since there were no other bubbles left to inflate.